VAT - time of supply of services
The measure
This measure introduces the UK's implementation of the place of supply of services rules. The changes are part of a long discussed EU wide initiative which is intended to ensure that, where possible, VAT is due in the country where services are consumed.
Who will be affected?
The measure implements changes to the time at which VAT must be accounted for on the receipt of cross border services. It affects UK businesses that are required to account for VAT as a reverse charge when they receive services from overseas.
The new measures make it clear that, for single supplies of services, the time that VAT must be accounted for is the time that the service is completed or when it is paid for (if earlier).
For continuous supplies the tax point will be the end of each billing or payment period unless payment is received earlier. For supplies that are not subject to billing or payment periods the tax point will be 31 December each year.
When?
The change takes effect from 1 January 2010.
The place of supply changes have been widely consulted on and reflect many of the concerns raised by businesses in the UK and around the EU. The major concern around the proposed changes to the time of supply changes was that the tax point (i.e. the time at which VAT must be accounted for) would be when a service is performed. Clearly most businesses do not have accounting functions that allow for VAT to be calculated on the time of performance, rather they rely on payment or invoice date. The measures implemented here alleviate some of that uncertainty.
However, there are still likely to be teething problems, not least in adapting systems and processes for the new changes. As a result, although there is nothing surprising in the measures, affected businesses will need to give this their full focus before 1 January 2010.
